Stockholders' Equity

12 Months Ended

Sep. 30, 2011

Equity

Stockholders' Equity Note Disclosure [Text Block]

NOTE 12 – STOCKHOLDERS’ EQUITY

A. Stock issued for consulting services

FY 2010:

On March 4, 2010, 47,786 shares of restricted common stock were issued as partial compensation to one director and one officer for certain consulting services provided to the Company.  A total of $57,343, which represents the aggregate fair value of the shares issued in excess of par value, was included in additional paid-in capital. The full amount was expensed and included in the Statement of Operations as a part of general and administrative expenses.

On April 8, 2010, 60,000 shares of restricted common stock were issued to an investor relations company as compensation for the service rendered to the Company. A total of $90,000, which represents the aggregate fair value of the shares issued in excess of par value, was included in additional paid-in capital. The full amount was expensed and included in the Statement of Operations as a part of general and administrative expenses.

On April 29, 2010, 13,514 shares of restricted common stock were issued to the Company’s independent director and audit committee chairman as compensation for service rendered to the Company from April to October 2010. A total of $22,298, which represents the aggregate fair value of the shares issued in excess of par value, was included in additional paid-in capital. The full amount was expensed and included in the Statements of Operations as a part of general and administrative expenses.

FY 2011:

In October, 2010, 10,256 shares of restricted common stock were issued to the Company’s independent director and audit committee chairman as compensation for service rendered to the Company from October 2010 to April 2011. A total of $20,000, which represents the fair value of the service, was included in common stock and additional paid-in capital. $20,000 was expensed and included in the Statements of Operations as a part of general and administrative expenses.

In October, 2010, 15,000 shares of restricted common stock were issued as partial compensation to a consultant for services provided to the Company for the year ended September 30 2010.  The service was valued at $30,900, which was included in common stock and additional paid-in capital. Accrued expense was reduced by the same amount.

In October 2010, 60,000 shares were issued to the Company’s investor relation agent for the service from October 2010 to March 2011. A total of $120,000, which represents the fair value of the shares issued, was included in common stock and additional paid-in capital. $120,000 was expensed and included in the Statements of Operations as a part of general and administrative expenses.

In October 2010, 20,000 shares were issued to a law firm for the service performed for the drafting of a registration statements filing. A total of $40,000 was included in common stock and additional paid-in capital and accrued expense was reduced by the same amount.

In March 2011, 150,000 shares were issued to a Company’s investor relations agent for service from March 2011 to March 2012. A total of $187,500, which represents the fair value of the shares issued, was included in common stock and additional paid-in capital. $109,375 was expensed and included in the Statements of Operations as a part of general and administrative expenses and $78,125 was recorded in prepaid expense

In July 2011, 16,807 shares of restricted common stock were issued to the Company’s independent director and audit committee chairman as compensation for service rendered to the Company from April to October 2011. A total of $20,000, which represents the fair value of the service, was included in common stock and additional paid-in capital. $20,000 was expensed and included in the Statements of Operations as a part of general and administrative expenses.

B. Stock Purchase Agreement

On March 26, 2010, the Company issued 2,100,000 shares of common stock and 2,000,000 Warrants to purchase Common Stock (Series B Warrants) to three accredited institutional funds and an accredited investor for $1,000,000 (the “Investors”). Net proceeds were approximately $870,000, net of issuance costs of approximately $130,000 in cash.  The Stock Purchase Agreement provided the Investors the right, which they exercised on June 10, 2010, to purchase an additional 2,100,000 shares of common stock and 2,000,000 Series B Warrants for an additional $1,000,000. The Series B Warrants allow the holders, prior to March 2013, to purchase up to 4,000,000 shares of common stock from ANNO.  The Series B Warrants may not be exercised if it would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common shares.  Cashless exercise is permitted only if there is no effective registration statement permitting resale of the common shares underlying the Series B Warrants.

The initial exercise price of the Class B Warrants was $1.50 per share.  However, the Stock Purchase Agreement provided that if the net income (before non-cash items) of ANNO for the year ended September 30, 2010 was less than $4 million or if the net income (before non-cash items) of ANNO for the year ended September 30, 2011 was less than $5 million, then ANNO will issue additional common stock to the Investors in order to reduce their per share purchase price in proportion to the shortfall in net income.    Because the Company’s net income for fiscal year 2010, calculated according to the terms of the Stock Purchase Agreement, was $3,737,593, the Company had an obligation to issue to the investors 259,197 additional shares.  In July 2011 the Company and the investors reached an agreement to settle the obligation by (a) issuing an additional 220,000 shares to the investors and (b) reducing the exercise price of 2,000,000 of the Class B Warrants to $.70 per share and of the other 2,000,000 to $1.00, provided that payment is made in cash (cashless exercise may still occur at an exercise price of $1.50). At the same time the investors made a one year, interest-free loan of $100,000 to the Company (See:  Note 8).  The issuance of the common stock was treated as reallocation of the proceeds from the private placement and had no impact on the Company’s net income.

The issuance of the common stock was treated as reallocation of the proceeds from the private placement and had no impact on the Company’s net income. 190,000 shares were issued as of September 30, 2011 and 30,000 shares were issued on November 28, 2011. For fiscal year 2011, the Company did not meet the net income target as defined in the private placement agreement.  If the formula in the private placement agreement were strictly adhered to, the Company would be obliged to issue approximately 4 million shares to the investors.  However, since the shortfall in income was a result of the extraordinary circumstance of relocating the manufacturing facilities and temporarily suspending production, the Company believes that strict adherence to that formula is not appropriate. Therefore, the Company will seek to reach a compromise with the investors on the number of common stock to be issued as compensation.

C. Loss on Private Placement

The exercise price of the Series B Warrants is subject to adjustments in certain circumstances for stock splits, combinations, dividends and distributions, reclassification, exchange or substitution, reorganization, merger, consolidation or sales of assets, issuance of additional shares of common stock or equivalents.   As a result of its interpretation, the Company concluded  that the Series B Warrants and Option to purchase additional common stock and Series B Warrants should be treated as derivative liabilities because the warrants are entitled to a price adjustment provision to allow the exercise price to be reduced in the event the Company issues or sells any additional shares of common stock at a price per share less than the then-applicable exercise price or without consideration, which is typically referred to as a “down-round protection” or “anti-dilution” provision.  The Company uses Level 2 method to measure fair value of its warrant liability .

The Company calculated the fair value of the Series B Warrants and Option at March 26, 2010 (date of grant) to be $1,830,565 and $3,566,572, respectively, using the Black-Scholes option-pricing model using the following assumptions: risk free rate of return of 1.64%, volatility of 127.39%, dividend yield of 0%, and expected term of 3 years for the warrants and 4 months for the option. The excess of the fair values of the warrants and option over the net proceeds received of $870,000 was charged to loss on private placement in the Statement of Operations.

On June 10, 2010, the investors exercised the option granted and purchased an additional 2,100,000 shares of common stock and 2,000,000 Series B Warrants for additional $1,000,000.  The option was revalued and the change of value compared to that of March 31, 2010 was charged to other expense for the three months ended June 30, 2010. The Company calculated the fair value of the warrants issued at June 10, 2010 (date of grant) to be $3,349,307, using the Black-Scholes option-pricing model using the following assumptions: risk free rate of return of 1.27%, volatility of 129.57%, dividend yield of 0%, and expected term of 3 years for the warrants. The excess of the fair values of the Series B Warrants over the net proceeds received of $919,975 was charged to loss on private placement in the Statement of Operations.

As of September 30, 2011 and 2010, the fair value of outstanding warrants was $1,545,098 and $5,097,483, respectively. The change in fair value of warrants in the amount of $3,552,385 and $82,389 was recorded as a change of fair value of derivative liabilities in the Statement of Operations.

During the year ended September 30, 2011 and 2010 the Company’s warrant liability accounts changed as followed: 

	Warrant
Opening balance
Issued in 2010	$	5,179,872
(Income) Loss included in earnings		(82,389	)
Exercised in 2010		-
Closing balance 2010		5,097,483
(Income) Loss included in earnings		(3,551,425	)
Exercised in 2011		-
Closing balance 2011	$	1,546,058

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at September 30, 2010:

Warrants Outstanding								Warrants Exercisable
Range of Exercise Price		Number Outstanding at September 30, 2010		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at September 30, 2010		Weighted Average Exercise Price
$	1.50		2,000,000		2.48	$	1.50		2,000,000	$	1.50
$	1.50		2,000,000		2.69		1.50		2,000,000		1.50
			4,000,000		2.58	$	1.50		4,000,000	$	1.50

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at September 30, 2011:

Warrants Outstanding								Warrants Exercisable
Range of Exercise Price		Number Outstanding at September 30, 2011		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at September 30, 2011		Weighted Average Exercise Price
$	0.70		2,000,000		1.51	$	0.70		2,000,000	$	0.70
$	1.00		2,000,000		1.72		1.00		2,000,000		1.00
			4,000,000		1.62	$	1.50		4,000,000	$	0.85

D.  Stock Options

In September 2011, the Company’s board approved the issuance of options to purchase a total of 800,000 shares of common stock to 67 employees. The options have a term of five years and an exercise price of $ 0.10 per share. There is no vesting period for the options. The options are

valued by using the Black-Scholes options-pricing model and the full amount of $319,999 was expensed as general and administrative expense in 2011.

The following table summarizes the status of options activities as of September 30, 2011:

	Options Outstanding and  Exercisable		Weighted Average Exercise Price		Average Remaining Life in Years
Outstanding October 1, 2010		-
Granted		800,000	$	0.10		5
Forfeited
Exercised
Outstanding, September 30, 2011		800,00	$	0.10		5